Semester 1, 2014 Stream 5 Jennifer Paneth Week 6: Capacity Is there a contract? Material elements: 1. Agreement (Offer and Acceptance) have the parties reached consensus? 2. Consideration have the parties struck a bargain? 3. Intention to create legal relations do the parties intend for their agreement to be legally binding? 4. Certainty have the parties clearly identified their rights and responsibilities? There should not be any doubt as to what each party is obliged to do in terms of the agreement
By people with capacity to enter into the contract With some types of contracts, certain formalities must be followed in order for the contract to be legally enforceable
2 Contract A LAW 2101 2014 Stream 5 General principles A contract that is otherwise properly made may still not be binding if one of the parties lacks capacity to contract Certain classes of people are deemed to lack contractual capacity: Minors Mentally incapable persons Intoxicated persons Contracts made with a person lacking capacity are generally voidable at the option of the person lacking capacity Different rules apply for necessaries Legislation has modified the common law Justification: protection from consequences of acts they may not be competent to assess
3 Contract A LAW 2101 2014 Stream 5 Minors Who is a minor? Age of majority is 18: Age of Majority Act 1977 (Vic) s 3(1) Persons under that age = minors
Different jurisdictions NSW has legislation comprehensively dealing with contracts made by minors Rest of Australia has mix of common law and statute This unit looks at law of Victoria
Law differentiates between contracts: Contracts which are binding absolutely on the minor (contracts for necessaries; contracts are legally binding even if the minor wishes to avoid it) Contracts which are binding unless repudiated by the minor (ie contract is valid until the minor denies its validity) Contracts which are only binding if ratified by the minor (ie upon turning 18, the person must declare himself / herself bound by the contract entered into as a minor) Contracts which are void absolutely (ie never binding, cannot be ratified)
4 Contract A LAW 2101 2014 Stream 5 Binding on minor - contracts for necessities Under the common law, contracts for the supply of necessary goods and services are binding on minors s.7 Goods Act (Vic) 1958: only must pay a reasonable price for those goods Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property: Provided that where necessaries are sold and delivered to a minor or to a person who by reason of mental incapacity or drunkenness is incompetent to contract he must pay a reasonable price therefore. Necessaries in this section mean goods suitable to the condition in life of such minor or other person and to his actual requirements at the time of the sale and delivery 5 Contract A LAW 2101 2014 Stream 5 Binding on minor - contracts for necessities What are necessaries? S.7: necessaries in this section mean goods suitable to the condition in life of such minor or other person and to his actual requirements at the time of the sale and delivery Examples include: Food and drink to maintain life Services of a lawyer Medical services Apprenticeship Transportation: bicycle!!! Consider: is a car a necessary?
If the minor already has an adequate supply, there is no necessity The Goods Act (Vic) 1958 provides that a minor must pay a reasonable price for necessaries sold and delivered so an unperformed (executory) contract for goods may not impose an obligation upon the minor
6 Contract A LAW 2101 2014 Stream 5 Binding unless repudiated Binding contract unless repudiated - voidable Some contracts are binding unless repudiated by the minor before they turn 18 or within a reasonable time of reaching 18. Such contacts are sometimes described as voidable at the option of the minor Repudiation may be by words or conduct Includes contracts with continuous obligations, eg where a minor acquires a leasehold interest in land Uncertain whether contracts for the sale and purchase of land will be binding unless repudiated Effect of repudiation: generally a minor will not be liable for obligations in the future
7 Contract A LAW 2101 2014 Stream 5 Contracts binding if ratified Other contracts (ie other than necessaries or contracts that have been repudiated) cannot be enforced against minor unless ratified by minor after turning 18 At common law, ratification may be inferred from minor continuing to perform the contract Legislation restricts the possibility of ratification: Supreme Court Act 1986 (Vic) s.50 Note that the contract may (even if not ratified) still be relied on and enforced by the minor by way of a damages claim (not specific performance)
8 Contract A LAW 2101 2014 Stream 5 Limitations on ratification
Supreme Court Act 1986 (Vic) s 50: (1) No proceeding can be brought to charge a person - (a) on a promise made after full age to pay a debt contracted during minority; or (b) on a ratification made after full age of a promise or contract made during minority. (2) This section applies whether or not there was any new consideration for the promise or ratification
Note: a new promise supported by consideration and in the same form as a promise made during minority will be enforceable except in relation to a debt. 9 Contract A LAW 2101 2014 Stream 5 Void contracts s.49 Supreme Court Act 1986 (Vic): The following contracts entered into by a minor are void- (a) contracts for the repayment of money lent or to be lent; (b) contracts for payment for goods supplied or to be supplied, other than necessaries; (c) accounts stated Common view: minor can enforce the contract. Not void in the ordinary sense Same result as would have been applied under s.50 contract cannot be ratified
s.51 Supreme Court Act 1986 (Vic): (1) If a minor who has contracted a loan (a contract for the repayment of which is void under this Division) agrees after full age to repay all or part of that loan, that agreement and any instrument relating to it is, subject to subsections (2) and (3), void against everyone. (2)
10 Contract A LAW 2101 2014 Stream 5 Mental Incapacity and Intoxication A contract made with a person with impaired mental capacity or a person who is intoxicated may be voidable at the option of that person The person seeking to set aside a contract on grounds of mental incapacity must show that: s/he was incapable of understanding the contract at the time that it was made; and that the other party to the contract knew or ought to have known of the incapacity Exception: necessaries (s.7 Goods Act 1958 (Vic)) Contract may also be voidable on grounds of unconscionable conduct (covered in Contract B)
11 Contract A LAW 2101 2014 Stream 5 Week 6 private revision issues Capacity Minors What contracts are binding on minors? What is a contract for necessaries? What contracts are binding on minors unless repudiated? What types of contracts are binding on minors if ratified under common law? In Victoria? What types of contracts with minors are void under s49 of the Supreme Court Act? What is the effect of a contract being void or not binding? Can the minor still enforce it? Persons with impaired mental capacity or intoxicated What is the status of a contract entered into with an intoxicated person or person with an impaired mental capacity? What about contracts for necessaries?
12 Contract A LAW 2101 2014 Stream 5 Copyright Warning - do not remove this notice
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